Milling company fails to show profit to government

6 March 2018

Lesotho’s
Finance Minister, Moeketsi Majoro, has raised a red flag over the
19-year failure of the country’s largest milling company, Lesotho Flour
Mills, to pay dividends to the Lesotho government, its 49% shareholder.
By BILLY NTAOTE for MNN Centre for Investigative Journalism reporters.

Last
year the MNN Centre for Investigative Journalism reported that a former
Lesotho Flour Mills board member had condemned the company’s inability
to generate sufficient profits to pay dividends as a deliberate strategy

Ramahoana
Matlosa complained that the joint venture between government and the
Seaboard Overseas and Trading Group, which holds a majority stake in
Lesotho Flour Mills (LFM), did not serve the interests of the
government or Lesotho.

“The agreements signed in 1998 are
written in a manner that is clearly skewed in favour of Seaboard’s
interests,” he said. “Seaboard indulges in extensive manipulation of…
financial statements and transfer pricing to paint a negative financial
picture which negates the payment of dividends.”

At a joint
sitting of Lesotho’s Senate and National Assembly during the 2018/2019
budgetary estimates this past week, Minister Majoro mentioned LFM as
one of the government’s corporate partners that “have not consistently
declared profits nor dividends”.

“Basotho are very concerned
about this and have openly called for a review of government’s
shareholding in these companies,” he said.

“It is also
notable that companies that have struggled with profits happen to
extensively use management contracts and buy services from their
holding or sister companies.”

Established in 1979, LFM was privatised in 1998, when Seaboard and a sister company bought a controlling stake for $10-million.

Seaboard is head-quartered in Kansas and operates in South America, the Caribbean and Africa.

Insiders
said that after Seaboard bought into LFM, its Bahamas-based subsidiary,
Seaboard Overseas Management Company, took over procurement for the
Lesotho operation.

The offshore operation is supposed to
provide management and technical advice in the operation of the flour
mill, maize mill, feed mill, sugar packaging plant and silo storage
complex in Maseru.

Seaboard’s sister company, Saxonvale
Investment, which holds the remaining 1% of the company, is registered
in tax haven the British Virgin Islands.

Under the
management agreement, Seaboard provides a managing director, director
of finance and administration, a technical director “and such other
staff as may be agreed with the (company) for a yearly $300,000 (about
R3.99-million) management fee adjusted in line with inflationary
charges …”.

The management contract provides that for all
trips to LFM beyond the annual inspection and consultation visits, the
Lesotho company must reimburse Seaboard to the tune of $500 (about
M6,659) per day per employee.

Sources said Seaboard had failed to make the profits needed to declare dividends for 19 years.

MNN
heard allegations that the milling company has exclusively procured its
raw materials from or through Seaboard, a charge repeated by the
Minister in his budget speech.

Reacting, the company said the allegations were “misplaced and inaccurate”.

It
said LFM occupies an important position in the agricultural life of
Lesotho, as it purchases “the entire crop of Basotho farmers for a
market-related price which protects them from having to compete with
larger milling operations.

“Flour Mills also provides
stability in the Lesotho agricultural sector for flour, maize and sugar
– a clear reflection of how (it) serves both the Government’s interests
and those of the Lesotho community.”

The company said the
MNN had not mentioned “the significant capital inputs … required to
upgrade and maintain the existing mills”.

It said dividend
payments had been used “to develop the industry and move the business
and its operation forward without relying on government’s capital
input”.